China tightens public-private project rules to curb debt risks

BEIJING (Reuters) – China has tightened rules on public-private partnership (PPP) projects to curb local debt risks, while trying to lure private investors that could be allowed to take controlling stakes.

Since 2014, Beijing has promoted a PPP model to channel private money into public infrastructure projects, to increase capital investment while easing the burden on heavily-indebted local governments.

But the PPP boom has alarmed authorities that say some local governments have used public-private partnerships, government investment funds and government procurement services as “disguised channels” for raising debt.

China will encourage private firms to invest in PPP projects and private firms will be allowed to take controlling stakes in some of them, according to the rules issued by the National Development and Reform Commission, the top planner, and the finance ministry.

The previous rules issued in 2015 did not contain such clauses, but China has allowed private investors to control some PPP projects, according to state media.

PPP projects should focus on user-pay projects, including roads, railways, civil aviation infrastructure, transportation and logistics hubs, which should generate investment returns as operating incomes exceed investment and operating costs, according to the rules.

Authorities will “resolutely curb new local government hidden debt, improve construction and operation of infrastructure and public utility projects,” the state agencies said in the rules.

“The public-private partnership has been implemented for nearly ten years and has played a role in improving public services and stimulating effective investment,” they said, but added there were some problems that needed to be solved.

(Reporting by Kevin Yao; editing by Barbara Lewis)